India’s economy is estimated to grow at 7.4% during the current year. In its Asian Development Outlook 2015 Update, Asian Development Bank (ADB) also estimated India’s growth during the current fiscal at 7.4% growth, which is expected to be supported by growth in industrial production, public capital expenditure and retail sales. This growth rate puts Indian economy at the forefront of all emerging market economies.

India’s GDP growth needs to be supported by growth in key infrastructure sectors, with power sector being the key among them. Research has estimated that electricity generation needs to grow by a factor of 1.15 times the GDP growth to support India’s growth .  

As on date, India is heavily dependent on thermal power to meet its ever increasing power needs. As on date, generating capacity in India is estimated at 281 GW, of which 60% or 170 GW comes through coal-based power plants . While thermal power capacity addition has its advantages, adequate supply of domestic coal remains an issue and the adverse effect on environment due to burning of fossil fuel to generate power is well documented. It may also be noted that one of the goals adopted by the recently concluded historic Climate Change Conference in Paris includes driving down carbon dioxide emissions from fossil fuels as soon as possible to limit global warming to “well below” 20C from pre-industrial times and perhaps as little as 1.50C, a target requiring much deeper emissions cuts than most countries are currently estimating. The resolutions were adopted by nearly 200 countries, including India.

Given the above background and the fact that 13 of the most polluted cities in the world are from India , India has recognized the urgent need to build power generation capacities using renewable energy sources to drive its economic growth

Renewable Energy Landscape in India

As on Dec 2014, installed capacity from renewable sources (excluding large hydro power projects) was estimated at 33.8 GW with wind energy contributing 22.5 GW or 67% of installed capacity, followed by small hydro power at 3.99 GW (11.8%), biomass power 4.2 GW (12.6%) and solar power 3.06 GW (9.06%) . In aggregate, installed capacity from these sources account for only about 13% of total installed capacity in India

In line with its objective to build sustainable power capacities to drive growth, India has focused in a big way to add renewable energy capacities and has set forth the target of 175 GW of capacity through renewable sources by 2022. This is aggressive target is estimated to require total investment of more than USD 200 billion and a more than 4.5 fold increase in capacity from its current levels.

Solar Power: Leading the Game with 100 GW by 2022

Majority of capacity addition is envisaged through solar power, which is estimated to increase to 100 GW by 2022. Out of 100 GW, 60 GW would come through grid-connected solar projects and the balance 40 GW would be through distributed roof-top solar power

Two major factors that drive the case for solar power are:

  • India has been blessed with states like Rajasthan that receive plentiful sunshine and has vast stretches of wasteland/barren land tracts, two of the basic requirements for deployment of large scale solar projects. As per industry estimates, total potential for solar power in India is estimated at 748 GW, with only 0.5% or about 3.5 GW currently being harnessed
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  • Solar power technology has witnessed significant improvements over the past decade. As a result of availability of better quality solar panels, commercialization of panel technology and increased supply from China/Europe, capital cost per installed capacity for putting up solar power plants have steadily decreased since 2009. With capital costs plunging from Rs. 180 million per MW in 2009 to nearly Rs. 62 million per MW currently, grid parity is in sight . This will reduce subsidy burden on government agencies and will also make solar power generation economically viable over the years

The Government has recognized the potential of the sector and has come out with policies to support its development. Jawaharlal Nehru National Solar Mission (JNNSM) was launched in January 2010 under the National Action Plan of Climate Change (NAPCC) to promote and oversee the development of solar power across India. Projects are now being successfully awarded under Phase I and Phase II of the policy. Incentives in the form of income tax holiday schemes, accelerated depreciation, concessions on customs and excise duties for renewables and reduced Value Added Tax rates allowed by certain states for renewable projects have been proposed. On demand side, the Government has also extended support in terms of enforcement of Renewable Purchase Obligations (RPO) compliance by states and end users. Supreme Court has also upheld RPO applicability on captive and open access consumers

The Government has also zeroed in on the concept of solar parks to promote large scale grid connected solar projects. Accordingly, the Solar Park Scheme has been formulated, wherein problems relating to land acquisition, appropriate infrastructure for power evacuation are proposed to be tackled. Therefore, Solar Parks are being promoted as a “plug and play” model for solar energy developers, wherein developers can concentrate on setting up generating capacities and get fast access to land and other infrastructure facilities within these parks. This is expected to significantly reduce the construction time for projects to 6 to 9 months from the traditional development model of about 18 months. Rajasthan and Andhra Pradesh have taken the lead in setting up such solar parks with private participation

Above positive developments in the solar energy sector have started attracting significant investments from both domestic as well as international investors. Investments have been committed by IL&FS Group, the Adani Group, Reliance Power, Sun Edison and Softbank to name a few for solar power plants of industrial size and scale. IL&FS Energy Development Company Limited (IEDCL), the energy arm of IL&FS Group have entered into a 50:50 joint venture with the Government of Rajasthan, to set up a solar park that can house solar projects up to 5000 MW capacity. Similar agreements have either been signed or proposed by Reliance Energy and Adani Group also

Investments in solar panels and equipment manufacturing have also been announced by companies to cater to increased demand for such products and also to indigenize manufacturing to the extent possible. Foxconn from Taiwan, Softbank from Japan and Trina Solar have announced tie-ups with Indian companies for equipment manufacturing in India

Wind Installations: 60 GW by 2022

From 22.5 GW of installed capacity as on date, wind installations are targeted to increase to 60 GW by 2022, resulting in 2.7 times increase in capacity.

Onshore wind is the most cost-effective renewable energy source in India, and PPAs have ranged from Rs. 3.39 to Rs. 6.50 per unit and favorably compares with imported coal-fired power generation’s wholesale cost of Rs. 5 to 6 per unit of electricity generated. While costs have been competitive, most of the wind turbines now operating in India report capacity utilization rate at 25% versus about 35% reported in USA, Australia and upwards of 40% at some sites in Brazil and New Zealand . This is primarily on account of use of wind turbines based on old technologies in these Indian installations

In view of the above, wind sector is also attracting significant interest from both domestic and foreign investors. China Light and Power (CLP), today owns the largest operating wind asset portfolio of about 1 GW. IL&FS Group also is a dominant player in this space, with operating wind asset portfolio of about 780 MW, with planned increase to 1.04 GW. Sembcorp, a leading Singaporean power conglomerate, invested about USD 170 million to acquire 60% stake in Green Infra, an Indian wind farm developer and is expected to increase its portfolio of wind assets in India substantially over next few years. Sun Edison has also acquired wind asset portfolios during the current year and notwithstanding its present financial condition, is bullish on this sector

Attractive industry dynamics is expected to drive capacity addition and investments in this sector, with advanced technology coming in through new wind farms and also through replacing older turbines in existing wind farms which are nearing the end of their useful life. India is expected to continue its record for being one of the least costly in the world in terms of setting up and running wind power installations. Bloomberg New Energy Finance (BNEF) forecasts the continued decline in nominal installation costs for wind and a progressive increase in utilization rates through 2040. As per BNEF, both installation and operating costs of wind energy are expected to decrease over the years, driven by lower financing costs and increase in utilization rates

In Summary

With focus on the renewable energy space from both Government and private agencies, policy initiatives taken at both Central and State Government levels, pollution reduction targets accepted by India in the recently concluded Climate Summit in Paris and increased interest of foreign investors in this sector supported by easier access to finance at acceptable costs, renewable energy is expected to significantly support and meet India’s growing energy needs. We can expect to see significant opportunities in this sector during the coming years, both for investors as well as energy developers. If India is able to meet the target of 175 GW of power through renewable sources by 2022, India will breathe green and easy


India’s Electricity-Sector Transformation, Institute of Energy Economics and Financial Analysis, August 2015

Power Sector at a Glance, Ministry of Power, Govt of India (http://powermin.nic.in/power-sector-glance-all-india)

“13 out of world’s top 20 polluted cities in India, only three in China”, Hindustan Times, June 05, 2015

Annual Report for FY 2014-15, Ministry of New and Renewable Energy

Industry sources and IFIN in-house estimates

India’s Electricity-Sector Transformation, Institute of Energy Economics and Financial Analysis, August 2015

Ibid above

Mr Tanmoy Adhikari

IL&FS Global Financial Services, HK Ltd. - Hong Kong

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